Coffee Stocks Are Percolating, But Are They Going To Brew Profits For You?

The market snapped out of its correction last week, with the three major indexes soaring around 5% each, and the coffee stocks were the group that was acting the strongest during the correction. Now that the correction appears to be over, these names are showing tremendous strength. With the recent moves higher, are they still going to brew profits for your portfolio? Names like Peet's Coffee & Tea, Inc. PEET, Starbucks Corporation SBUX and Green Mountain Coffee Roasters Inc. GMCR are all outperforming, and should continue to see some strength, despite valuations being a bit stretched on some of the names. As the momentum traders move into these names, they can push the names past reasonable and unreasonable, but traders may want to have looser stops, to allow for the larger than expected moves in these names. Just look at the chart of microcap company Coffee Holding Co., Inc. JVA. There was a 20% or so correction in the beginning of June as the stock started to make its uptrend, which would have taken out most stops, but you would have missed an additional 50% upside. It all comes down to risk tolerance in momentum, with some traders willing to risk more than others for greater gains. If you do not feel comfortable with price swings like, consider names like Tim Hortons THI or Starbucks, which are less volatile. Peet's is another name which is breaking out, and could see further upside from these levels, as the market continues to move higher. With the Dunkin' Brands IPO coming soon, and coffee prices dropping well off their highs, the fundamentals for the group appear to be very strong. Just look at this line from the Dunkin' Brands prospectus: "We believe there is a significant opportunity to grow our points of distribution for Dunkin' Donuts in the U.S. given the strong potential outside of the Northeast region to increase our per-capita penetration to levels closer to those in our core markets." If investors want some piping hot gains, consider adding to these names as they power higher. They could be a nice jolt to your portfolio.